Which of the following statements is correct for both income trusts that are not specified investment flow-through trusts (i.e., not SIFTs)and mutual fund trusts?
A)Dividend income is grossed up before it is distributed to the unit holders.
B)All after tax distributions are treated as deemed eligible dividends.
C)Income earned by the trust is not subject to income tax within the trust if it is distributed to the unit holders.
D)If the distributions are a return of capital, the inclusion rate is 50 percent.

Question

Quizplus · Accepted Answer

Income earned by both income trusts and mutual fund trusts is not subject to income tax within the trust if it is distributed to the unit holders. This is because both types of trusts are considered flow-through entities, meaning that the income earned is passed through to the unit holders and taxed in their hands. However, options A, B, and D are not correct for both types of trusts. Option A only applies to certain types of income trusts that qualify as Canadian public corporations, while option B only applies to certain types of mutual fund trusts that meet certain requirements. Option D is not a universal inclusion rate for all return of capital distributions, as it depends on the specific circumstances of the trust.

Which of the Following Statements Is Correct for Both Income